Sunday, September 30, 2012

Five looming dangers that could tear the eurozone apart

by Heather Stewart

September 30, 2012



Rumour has it in Brussels that eurozone politicians have sworn not to push Greece out until after Barack Obama is safely back in the White House. But few analysts believe it has a long-term future in the single currency.

After fraught negotiations that stretched on all summer, the coalition government, led by Antonis Samaras, appeared last week to have reached agreement on a new package of cuts, which it hopes will satisfy the demands of the troika.

But Greece's economy remains in a wrenching recession, and it looks likely they will continue to miss the goals set by international lenders, even if the next €31bn (£24.7bn) disbursement from its bailout fund is released. Eventually, Greece's partners may decide to let it go – especially if they believe they have elected a solid firewall that would prevent a "Grexit", as it's known, creating a devastating chain reaction in financial markets.

And Greece could yet decide to leave of its own accord, if domestic political pressure becomes too intense. With Samaras elected on a promise he would exact concessions from the country's creditors, the political reaction to a fresh round of cuts from a population already scarred by the downturn is likely to be furious. Protesters threw Molotov cocktails at riot police at a protest during last week's general strike, the latest of many as the workforce has endured cuts in benefits, wages, pensions and public services to meet the troika's deficit targets.


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